What Are “State Channels” and Why You Need To Pay Attention.

State channels are a very broad and simple way to think about blockchain interactions which could occur on the blockchain, but instead get conducted off of the blockchain, without significantly increasing the risk of any participant. State channels are the general form of payment channels, applying the same idea to any kind of state-altering operation normally performed on a blockchain.

The basic components of a state channel are very simple:

1. Part of the blockchain state is locked via multi signature or some sort of smart contract so that a specific set of participants must completely agree with each other to update it.

2. Participants update the state amongst themselves by constructing and signing transactions that could be submitted to the blockchain but instead are merely held onto for now. Each new update “trumps” previous updates.

3. Finally, participants submit the state back to the blockchain, which closes the state channel and unlocks the state again (usually in a different configuration than it started with). Source: Jeff Coleman.

Make sure to remember State Channels are not an application but a valuable technique that can be used by most blockchain applications to become more efficient.

Ok and so what does that mean to you.

-A quick side: I’m not going to dumb this down. I think there is way too much generality forced and directed towards commercial real estate and the people involved when any type of technology is mentioned. Whoever does that has NO CLUE who they are dealing with. This is #CRE and yes, we are some of if not the smartest MFer’s out there. #Respect

Simply put this is a way to do secure blockchain transactions and SAVE MONEY or Fees that are incurred when doing a secure transaction.

A quick example would be that Seller A and Buyer B do multiple parts of a single transaction. Only the final and complete transaction is put in/on the blockchain and only then will a single transaction fee be incurred.

See I am saving you money already and you may not even understand why.

It only gets better.

For illustrative purposes, you can think of this as similar to how we interact with other trusted sources, like a legal system. When two parties sign a contract, most of the time they never need to take that contract to court and ask a judge to interpret and enforce it. If the contract is properly designed, both parties simply do what they promised to do, and never interact with the courts at all. The fact that either party could go to the court and have the contract enforced is enough to make the contract useful.

This technique is not just useful for payments, but for any update to the state of an ethereum program – hence the more general term “state channel” rather than the narrow “payment channel.” Instead of sending payments back and forth, we can send updates to a smart contract back and forth. We can even send entire ethereum smart contracts that, if needed, will be sent to the blockchain and executed. These programs never have to be executed to be useful. All that is needed is a sufficiently high guarantee that they could be executed if necessary.

In the future, most blockchain applications will use state channels in some form. It is almost always a strict improvement to require less on-chain operation, and many things done on-chain today can be moved into state channels while still preserving a sufficiently high guarantee to be useful. Source: Coindesk

Let’s make this even more valuable.

Who owns that transaction?

Who decides when and how that transaction is executed?

How about this one. Who owns all that secure data?

Answer: The creators of the transaction.

Who decides who can have access to that transaction and all the data associated with it?

Answer: The creators of the transaction.

Go ahead I know you want to go reread what the definition of a State Channel is again.

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